It’s just a correction


This week in our forum, one of our more astute investors posed the question whether we were in for a bear market or just a correction. He summarized that I have been of the belief that I thought we were still in a secular bear market. I think I surprised him when I said I wasn’t so sure anymore. Here’s my response:

 

Interestingly, my thought process has been slowly coming around to the idea that we did in fact start a new secular bull market in 2009. I am not certain either way however. Here’s why I think we MIGHT have started a new secular bull market.

The bottom in March of 2009 brought us to valuation levels now seen in 4 generations. That’s a long time. It would actually be unusual to see a lower low after that. If that’s so, we are actually seeing the beginning of a new secular bull market.

In an article I am finishing tomorrow and submitting to MarketWatch, I make the case that a new secular bull market has started or is about to start due to the millennial generation coming of age. The force of their generation is going to be huge on the economy. There are as many echo-boomers (millennials) as there are boomers, in fact a couple million more. That’s a huge demographic lift for the economy.

In addition to the demographic positive impact, the advent of cheap energy and exported energy is massive. We’re talking a 1% to 2% addition to GDP on average per year. So, even in a slower growth world – the NEW NORMAL – the U.S. stands to still see GDP growth numbers very soon that are old normal for us anyway.

The keys to a powerful economy are several. A young educated work force, natural resource position, economic diversity, legal reliability for property rights, moderate to low debt. It is only the last one that the U.S. is borderline as we have moderate to high debt. I believe the new cheap energy / energy export situation changes the equation for America. I started talking about that in 2011.

As I look back on the things I’ve written in MarketWatch, I am amazed at how on the head I’ve been with the macro analysis. My big calls have been in 2011 the “energy technolution” and it’s impact on America and the world, in 2012 the strengthening dollar and the rise of solar, in 2013 to ride the wave up but prepare for global growth headwinds, in 2014 to start getting conservative and the weakening Euro, this year to raise cash because it would be like 2011 and buy into the energy correction. So far, only buying into the energy correction hasn’t worked out. I’m 99.9999999% sure it will work out.

I think this is a correction, but even if it is a broad bear market, it won’t very likely be a 50% crash. Although, as we know, energy is in fact down 50%, so there are bear markets and actual crashes that exist. In general, buying a crash usually works out very well long-term.

I’m not sure when we see a 50% crash again, I suspect when a country like Japan goes Greece, which I don’t see happening until the early 2020s at the earliest. Yes, China is maturing, but it’s not going to get destroyed. At some point the Chinese will fill the ghost towns, write down those assets which won’t really hurt us (do you own shares in Chinese real estate companies?), print some money and jump start their economy which will grow middle single digits on average for a generation.

The world is evolving, not imploding. See the ebbs and flows for what they are, ebbs and flows. Get on the right side of the equation with the strongest positioned nations for growth and stability. America is one of those nations.

So, I am buying into this correction slowly but surely. This weekend we have new recommendations, including an international oil play that has a solar kicker, two semi-conductor companies that have made a massive break through in technology that will change cloud computing and smart phones and a solar company that is so beaten down it represents value in a growth industry.

Also in the forum is a new thread about the emotions of investing. That thread is open to the public. Take a look. 

Have a great rest of the summer and don’t panic. If you have cash to invest, do it slowly. If you are fully invested, make some smart tactical decisions – subscribers can take a look at our Global Trends ETF model portfolio for some ideas.

By the way, if you aren’t watching the weekly webcasts, you should be. Here is the one from August 12th where we warned folks about what was about to happen. Titled: Danger, Danger, Danger. Not sure how we could have been more clear. Subscribe to the Fundamental Trends Youtube page.

https://youtu.be/R1o-YnM-LNA

 

Kirk